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Singapore’s sovereign fund GIC likes properties here

Munshi Ahmed | Bloomberg | Getty Images

GIC, Singapore's sovereign wealth fund, is taking a long view on its real-estate investments, particularly eyeing emerging markets despite recent turmoil, the president of the fund's property division said.

The usually tight-lipped fund has plenty of dry powder to pursue property deals. The fund, which manages upwards of $100 billion, has an allocation of 9-13 percent of its portfolio toward property, but at the moment only around 7 percent has been invested in the segment. GIC's property portfolio has more than 350 investments in over 40 countries. GIC's mandate bars it from investing in Singapore's property market.

Goh Kok Huat, who is also GIC's chief operating officer, said GIC is watching emerging markets closely. He cited statistics showing that the Brics -- or Brazil, Russia, India and China -- together with Indonesia and Turkey will become the single largest contributing bloc to global gross domestic product (GDP) over the next 10-15 years.

"If your sights are set on the long term, the emerging markets must be where you ought to be," Goh said at the AsiaPac Property Leaders Summit in Singapore Wednesday.

But he added, "in the short term, we all need to deal with the volatility in the emerging market as global macro forces shift, as the U.S. dollar strengthens, because that's likely to bring about weakness in emerging markets."

Emerging markets have been hard hit by massive fund outflows over the past few months, hit by a combination of expectations the U.S. Federal Reserve will soon raise interest rates for the first time in nine years and slowing economic growth in China. Consensus expectations are for the hike to come at the Fed's December meeting.

Global investors are estimated to have sold $40 billion worth of emerging market assets in the third quarter, making it the worst quarter since 2008's fourth quarter, during the Global Financial Crisis, according to the Institute of International Finance.

Buying when the macro outlook appears bleak is not new to GIC. Goh noted that one of the reasons the fund's property holdings are so concentrated in Asia -- with 52 percent of its real-estate assets in the region -- is because it was buying in the late 1990s in the post-Asian financial crisis period.

Goh said he's also watching the direction of interest rates, but not only in the U.S.

"One of the most challenging question that we are dealing with right now is what does the low rate mean," he said. "Can it go any lower? It's negative in real terms in a lot of places. If the answer is no, over the long term, the next 30 years, rates are likely to rise."

He's concerned that as interest rates rise, that will compress the spread between bond yields and capitalization rates, or the ratio of a property's net operating income to its asset value, which provides an estimated return.

That means GIC has been looking at assets that both have "relatively generous" spreads over bond rates and that have room for income growth over the longer term, he said.

Asked his opinion of various property markets, Goh said when it comes to China, it's important to ignore short-term volatility and focus on the long term. On Japan, he said to consider the prospects of tourism, adding "it's huge."

He believes Australia and New Zealand will remain key markets for GIC, due to their liquidity and depth, while the U.S. market, which is both deep and transparent, "can't be ignored."

He considers both Indonesia and Brazil markets to watch, but believes the European property market is difficult as pricing is high, while fundamentals are weak. For those willing to take risks, Goh believes the India market may offer "supernormal profits."

Those views track with GIC's recent deals. In October, GIC tied up with developer Tishman Speyer for an office development project in Hyderabad, India. That followed a March deal with developer Brigade Group to buy a property in a Bangalore IT Special Economic Zone.

It also entered a joint venture with Macerich in October to invest in five retail assets in Oregon, California, Arizona and Texas. In May, GIC tied up with the Canada Pension Plan Investment Board to buy a mall in Seoul for a total $263 million. In late 2014, GIC acquired an office building under development in downtown Rio de Janeiro and in Japan, it tied up with Global Logistic Properties to acquire an $8.1 billion logistics portfolio in the U.S.

Last year, GIC tied up with Scentre Group to acquire five New Zealand shopping centers and entered a joint venture with Goodman Property Trust to invest in Auckland's developing Viaduct Quarter.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1